When two companies work on two similar projects, they have to improve their product. This is an example of the right approach. It stimulates development. Now let’s move on to the example of the wrong approach.
In early May, Polish President Andrzej Duda announced the start of construction of the Baltic Pipe gas pipeline. The pipeline should connect Poland with Denmark in order to pump up to 10 billion cubic metres of Norwegian gas a year. The construction is expected to be completed by 2023. Warsaw calls the project strategic for the whole region and positions it as a competitor for Russian Nord Stream 2.
With Baltic Pipe Poland expects to become a regional energy hub, displacing Russian companies from the European market. The plans are definitely ambitious. But does the main tool used by Poles match them?
By betting on Baltic Pipe, Warsaw is silent on some features of the project. The first thing that gives rise to doubt is the duration of the idea. They wanted to connect Polish gas transmission system with Norwegian fields in the North Sea back in 2001. Then the Polish state-owned oil and gas company PGNiG signed an agreement with Danish DONG Energy, but the project was found to be economically impractical and forgotten. They tried to reanimate it in 2007 and 2010, but to no avail. Finally, we returned to the idea in 2016, taking advantage of the geopolitical tension. Baltic Pipe was declared a means to achieve energy independence from Russia. In the struggle for the European gas market between Washington and Moscow only this information background allowed the Polish project to stay afloat. No wonder Baltic Pipe is now often called the “killer” of Nord Stream-2. And nobody pays attention to the paradoxicality of this statement.
Norway, produces about 120 billion cubic meters of gas per year. The entire volume is successfully sold on the European market, and the kingdom has no extra gas. This is confirmed by the data of the Petroleum Directorate, according to which production has decreased by 8% in the last 2 years. Oslo even expects to start developing deposits in the Barents Sea, but it will be possible to reach the level of 2017 only in 4 years. Despite this, Polish PGNiG continues to actively buy shares of companies that produce on the North Sea shelf. By 2022, it plans to increase production to 2.5 billion cubic meters, which is 5 times more than now.
“Thanks to new discoveries we will increase our own production on the Norwegian shelf, where we want to produce 2.5 billion cubic meters annually after 2022”, – said the head of the Polish company Peter Wozniak.
Obviously, this will not be enough to load Baltic Pipe anyway. And if it is done, it will be to the detriment of other European buyers of Norwegian gas, which will only fuel their interest in supplies from Russia. There are reasonable doubts that European countries will agree to buy Norwegian gas with Polish mediation. It is simply unprofitable.
The delivery of one thousand cubic meters of gas via Europipe II to Baltic Pipe will cost about 16 dollars. Another 16.7 dollars will cost to pump gas directly to Poland. With the initial price of Norwegian gas at $99, Poland gets its cost at $132. For comparison, Russian Gazprom set the average price of its gas at $78 in June. If you need other arguments, do not forget that Nord Stream-2 has almost 6 times more capacity than its “killer”.
Baltic Pipe is a good example of bad competition. More precisely, the Polish project is not competitive at all. It exists solely due to a loud advertising campaign. We must assume that someone on the other side of the Atlantic liked it very much, because there is no other reason for Baltic Pipe to exist. It is especially ironic, because it has always been Nord Stream-2 that has been trying to politicize. One could say here that everything is not so bad at Baltic Pipe that the authors of the project only need to think through some details. But it makes no sense. The verdict was passed 20 years ago. Without a political component, without American sanctions against Russia, Baltic Pipe is a gas pipeline for the sake of the gas pipeline. It is a pity that huge resources are being spent on a deliberately failed project. Only one conclusion can be drawn from this: someone expects to make good money on construction, and he is not interested in the future fate of the pipeline.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.